In the competitive business landscape, effective procurement performance management (PPM) is no longer a luxury — it’s a necessity. A strategic approach that equips businesses with valuable insights into their purchasing processes, PPM is a powerful tool for businesses seeking to optimize their procurement operations.
By scrutinizing every stage of the procurement process, companies can identify bottlenecks, reduce costs, manage risks effectively, and make data-driven decisions that contribute to overall business success.
Implementing a robust PPM strategy offers numerous benefits for businesses:
One of the primary objectives of PPM is cost reduction. Effective PPM enables businesses to identify cost-saving opportunities, mitigate against inflation, and manage demand efficiently. Through strategic sourcing and better negotiation tactics, businesses can negotiate better pricing and terms with suppliers or substitute expensive materials with cheaper alternatives, thus reducing costs significantly.
Efficiency in procurement processes is key for businesses to stay competitive, and PPM helps to streamline these processes by identifying areas that need improvement. PPM can aid in reducing cycle time for the business to have something procured while improving the quality of steps taken along the way, not only saving time but also increasing productivity.
The impact of PPM on a business’s bottom line can be measured using a set of specific procurement performance metrics. These metrics provide valuable insights into various aspects of the procurement process, such as spend under management, spend under contract, spend sourced, realized savings and spend on a PO.
Each of these metrics measures the results of a specific facet of the sourcing process, enabling leadership to turn the dial on very specific sections of the process to drive to a specific goal. By monitoring and measuring these metrics, businesses can drive continuous improvement in their procurement processes over time and further demonstrate the value the procurement team brings beyond cost savings.
Spend Under Management (SUM) is a way of measuring what % of the total spend is actually being managed by procurement. Spend that happens without any procurement engagement is considered unmanaged and will have a mix of sub-optimal pricing, unnegotiated terms and hidden risks.
Spend Sourced is a way of measuring what % of the spend had an RFx event run vs just renegotiation with incumbent suppliers. The value of running the RFx event is that you get to sample the market for new & better suppliers as well as tap into current more competitive pricing, neither of which happen with renegotiations.
Spend Under Contract (SUC) is a way of measuring what % of the total spend is with suppliers that have a contract in place. If there is a contract then you know that you are at least buying based on negotiated terms and pricing, a better understanding of any risks, and have more control over the supplier relationship.
Measuring the savings that result from procurement involvement is a key metric, and there are many flavors of this calculation. The important thing is that it is getting measured and reported on consistently.
Spend on a PO is measure of managed spend. With a PO, you know that the spend was planned and pre-approved, making spend and budget management more effective and efficient.
PPM provides a data-driven approach to managing stakeholder expectations, and ensuring transparency and accountability. By regularly tracking and reporting on procurement performance, businesses can inform stakeholders about their performance and progress toward goals. This keeps stakeholders satisfied and helps build trust and confidence in the business.
To successfully implement PPM, businesses should:
However, achieving all of the above is impossible with a purely manual system pulling disparate data sources or with outdated solutions that just weren’t built for the procurement function’s needs.
The journey to procurement excellence begins with a strategic approach – one that OneMarket Portfolio can help you navigate. Our solution serves as a “Single Source of Truth” and offers an efficient way to manage sourcing projects, easily matching resources to demand and tracking savings.
With our platform, procurement leaders are empowered with accurate, real-time insights that streamline the PPM process to drive better performance, leading to ultimate success. In the fast-paced world of business, having a competitive edge is crucial, and that’s exactly what OneMarket Portfolio delivers. Explore OneMarket Portfolio today and discover how you can revolutionize your procurement process and propel your business to new heights of success.
Learn more about OneMarket Portfolio and the four other modules that enable the source-to-pay lifecycle here.
About the Author
Mark Flowers
Managing Director, Product Management & Operations, OneMarket
Mark is a software veteran, self-confessed data nerd, and an experienced procurement practitioner. He has 30+ years of experience spanning both Sell-side and Buy-side of Global Business, operating from 5 countries across Asia and North America, with Senior Leadership roles across Procurement, Product, Sales, Finance, Marketing & Customer Service.
